The rise and impact of nurse practitioners and
physician assistants on their own and cross-occupation
incomes.

Abstract:

There has been a dramatic increase in the authority granted to
nurse practitioners (NP) and physician assistants (PA). This
"expanded" authority has changed who can provide health-care
services and has weakened the control physicians have traditionally held
over the provision of medical services. These changes in regulation have
varied by occupation, state, and year and provide variation that can be
exploited to empirically measure the individual and collective impacts
of changes in NP authority and PA authority on practitioner incomes. It
is found that changes in NP and PA regulatory authority do impact the
labor markets of all three practitioner categories. NPs having greater
practice authority brings physician incomes down, has differential
impacts on PA incomes, and improves their own earnings, other factors
held constant. PAs having increased authority has a downward effect on
NP earnings, a positive impact on physician income, and little impact on
their own incomes. (JEL I18, J18, J44, H75)

Health care is a large, dynamic, and growing segment of the
economy. Of its many interesting facets is the fact that its occupations
are nearly universally regulated. A mandatory condition to work in a
regulated occupation is to hold the appropriate license or
certification. Typically, these licenses not only authorize a
practitioner to practice but also give parameters of that practice: what
the occupation can and cannot do. Any change in these parameters has the
potential of dramatically altering the occupational landscape as there
are direct and indirect impacts on the occupation experiencing the
change as well as on other related occupations. These impacts are of
interest generally, but especially for an industry as large and
prominent in public policy concern as health care.

There has been a dramatic change in occupational regulation in the
health-care industry leading to nurse practitioners (NPs) and physician
assistants (PAs) rising as primary health-care providers. Both NPs and
PAs have experienced authority expansions at different times in
different states that has resulted in their practice authority
resembling that of traditional general care physicians. This change has
gone largely uninvestigated in the literature. This lack of attention
coupled with the importance of the health-care industry in which these
changes have taken place motivates this research. It is found that the
changes NPs and PAs have experienced have had economically significant
impacts on their own and physician incomes.

B. Literature

There has been a significant amount of attention in the larger
academic literature concerning NPs and PAs. Nearly all the developed
literature can be grouped into three broad categories. The first traces
the rise of NPs and PAs as primary caregivers, chronicling their
histories and the role each plays in the medical care system today. (1)

A second category, and of particular importance to this research,
is a literature on the quality of care provided by NPs and PAs as
compared to that of physicians. The research consistently finds that
care given by NPs, PAs, and physicians is generally indistinguishable, a
result that is robust to how quality of care is measured. (2) In
addition to objective quality of the care measures, the research
investigating patient satisfaction finds that NP and PA care scores at
least as high as that provided by a physician. (3)

A third branch of the literature has examined the impact of NP and
PA regulatory changes on the populations of NPs and PAs. In 1994,
Sekscenski et al. (1994) examined the relationship of state practice
environments and the number of NPs, PAs, and nurse-midwives in a state.
The authors constructed an "index" of state practice
environments and found that higher index scores (more favorable practice
environment) were positively correlated with the relative number of NPs,
PAs, and nurse-midwives.

Wing et al. (2004) expanded on Sekscenski et al. (1994) and looked
at the relationship of state practice environments and provider
populations for years 1992 and 2000. They used the basic framework
developed by Sekscenski et al. (1994) but made some modifications to the
practice index value. They found that the differences between
states' index values narrowed over the time period, implying that
practice environments became similar between states over time. They also
found that provider populations were positively correlated with state
practice environments. In related research using a more sophisticated,
regression approach, Kalist and Spurr (2004) found that in states where
NPs had greater practice authority, enrollments in masters nursing
programs were higher. (4)

A fourth, undeveloped category of the literature, and where this
research seeks to expand the body of knowledge, concerns the effect of
NPs and PAs gaining greater practice authority on their own incomes as
well as that of physicians. Dueker et al. (2005) made a first
contribution to this question. They investigated the impact of advanced
practice nurses (APNs) having expanded practice authority on the incomes
of APNs, PAs, and physicians. (5) Using the Current Population Survey
(CPS) from 1988 to 2002, the authors estimated that APNs having greater
practice authority lead to lower incomes for APNs and higher incomes for
PAs and found some evidence that it lowers physician incomes.

These findings, however, seem counterintuitive. That APNs having
greater practice authority in a state leads to their own incomes falling
and that of a substitute caregiver occupation's (PAs) increasing,
even after addressing potential endogeneity issues, probably does not
meet the prior expectation. The hypothesis provided by the authors is
that as APNs have gained greater authority, the established physician
population has tended to favor hiring PAs instead of APNs when their own
medical practices make a nonphysician hire. This leads to the demand for
APNs to presumably fall and that of PAs to increase. This explanation is
given some plausibility when it is understood that in all states, PAs,
as a condition to practice, must be employed by a supervising physician.
There is no such general requirement that APNs must practice under a
physician.

Dueker et al.'s (2005) findings are also consistent with some
parts of the limited literature investigating the impact of changes in
occupational regulation on a profession. Sass and Nichols (1996) find
that as physical therapists gained greater professional independence
from physicians they experienced a fall in incomes. However, the
literature is not settled and in research by Goldsmith (1989), it is
found that with respect to dental hygienists, the less autonomy and
authority they have from dentists, the lower their incomes.

C. Contribution

The work of Dueker et al. (2005) is a first venture into
understanding the impact of the dramatic change of allowing nonphysician
caregivers to obtain authorities traditionally held by physicians. This
research seeks to expand and refine the literature. Instead of examining
the APN group, which is composed of very distinct occupations such as
midwives and nurse anesthetists that face significantly different labor
market conditions, its largest and most general care focused component,
NPs, is considered. This is also important because the changes in
practice authority examined pertain most directly to NPs.

In addition, instead of focusing exclusively on the changes in NP
authority, changes in PA authority are specifically incorporated. If NP
authority is important to NP, PA, and physician incomes, it would be
expected that similar changes in PA authority would also be important
for each of the practitioner groups. Thus, accounting for changes in PA
authority is at least as important as accounting for NP authority.

A third advancement is employing richer and more detailed data with
respect to NPs and PAs. The CPS, the data used by Dueker et al. (2005),
does not specifically identify NPs. In addition, the CPS has a
relatively limited sample of PAs (only 51 are reported in the 2005 CPS
March Supplement). While a standard workhorse in economics research,
these unavoidable limits of the CPS constrain the analysis for NPs and
PAs.

A final contribution of this work is to control for an additional
avenue of authority obtained by NPs and PAs. While the measure of
authority incorporated into the Dueker et al. (2005) investigation
(prescriptive authority) is the primary authority considered in other
related literature, it is not the only measure of regulation that has
changed or that has been studied in the literature. Expanding and
controlling for the scope of what occupational changes have occurred
provide the opportunity to understand the changes in authority more
fully.

II. REGULATORY CHANGE OVERVIEW

No single source provides an accounting of the changes in NP and PA
authority. Rather, the literature provides bits and pieces. With this,
states can be widely different how they approach occupational
regulation. Accounting for every change to both NPs and PAs is not
feasible. Thus, the first task was to determine what changes in
regulation were material and the second was to compile those changes in
a usable format.

The established literature informs on the relative importance of
the changes in regulation that have occurred. In Sekscenski et al.
(1994), the two largest categories of practice regulation that comprise
their "practice environment score" are prescriptive authority
and reimbursement authority. Wing et al. (2004), while altering the
weights of each authority in their revised practice score, still employ
both reimbursement and prescriptive authority as primary components.
Dueker et al. (2005) focus solely on prescriptive authority. Following
the larger literature, this research focuses on two regulatory areas of
authority: prescriptive authority and reimbursement authority.

Prescriptive authority is the area where the most change has
occurred and has probably been the most visible to the outside world.
Prescriptive authority is defined in this research as the authority to
write and administer prescriptions for both noncontrolled and controlled
pharmaceutical substances. (6) Twenty years ago most states did not
allow NPs and PAs this authority. By 2006, however, nearly all states
had authorized NPs and PAs prescriptive authority, though there has been
variation in the timing and extent of this authority by state and
profession.

NPs and PAs have long been able to see and counsel patients, take
medical records, and provide diagnosis and treatment suggestions.
However, without full prescriptive authority, they are limited in the
total level of care they can provide. For example, if an NP sees a
patient with a broken arm, without full prescriptive authority, the pain
medications that would typically be prescribed to the patient could not
be given. Rather, a physician who can prescribe the required
medication(s) is needed so that the patient care can be
"completed." As NPs and PAs have obtained full prescriptive
authority, they gained the ability to see a larger proportion of
patients in totality without the involvement of a physician.

The second area of regulatory change is reimbursement authority.
Reimbursement authority concerns a legal mandate that services provided
by NPs or PAs be compensated by third-party payers and insurers. NP and
PA services have not always been recognized by or been independently
billable to third-party payers and insurers. Rather, reimbursement was
facilitated through an employing physician practice or medical care
facility. By granting specific reimbursement authority, a state requires
payers to cover services provided by these nonphysician practitioners.

While both NPs and PAs have experienced changes in reimbursement
authority, there is an important distinction in the authority between
the two practitioners. For NPs, reimbursement authority implies the
ability to bill for services independent of a physician. Having this
authority allows an NP to claim payment from insurers in the absence of
a physician, altering the more traditional hierarchical relationship.

For PAs, reimbursement authority has a different meaning, which
stems from the core practice relationship they have with physicians.
From the inception of the PA occupation, PAs have been required to
practice under a "supervising" physician. While the meaning of
supervising is different from state to state, all states require a PA to
be employed by a supervising physician. Thus, being granted
reimbursement authority mandates that a PA's services be recognized
and paid by third-party payers and insurers, but it does not imply
independence from physicians. This, while not as strong as the authority
it implies NPs have from physicians, is important in that it alters the
previous state of the labor market.

To compile a by state, by year record of the two areas of
practitioner authority, a variety of sources were used. For NPs, the
initial source employed was the annual "Legislative Update"
published annually in the journal Nurse Practitioner (1992-2006). This
publication provides a brief overview of state laws concerning NP
practice in all 50 states and the District of Columbia. The Nurse
Practitioner's Legislative Updates were then supplemented (and
corrected) with individual state statue and regulation research to yield
a complete panel of state regulations concerning prescriptive and
reimbursement authority for NPs for the period 1992-2005.

For PA authority, the American Academy of Physician
Assistants' (AAPAAC) Physician Assistants: State Laws and
Regulations series of publications was the primary source. This
publication has been produced sporadically over the past decade
(American Academy of Physician Assistants, 2002, 2000, 1998, 1992) and
contains systematic information, by state and year, on PA regulation.
This publication was used as a foundation and then supplemented by
individual state statute and regulation research that resulted in a
complete panel of regulations for the period 1992-2005.

With data on both NPs and PAs, a global picture of how each
practitioner group's authorities changed can be seen. Table 1
provides a summary overview of the authority of these practitioners and
how their authorities have changed. It highlights the dramatic increase
in the percent of states authorizing NPs and PAs both types of
authority. In particular, the increase in prescriptive authority has
been particularly active with less than half of the states allowing
either NPs or PAs to write controlled substance prescriptions in 1992 to
all but a handful not allowing this authority by 2005. While the
proportion of states granting reimbursement authority is not as great,
the level of change between 1992 and 2005 is dramatic, especially for
PAs. The variation by state and year is precisely what is needed to
empirically estimate the effects of these policy changes. Table A.1 in
the appendix provides a year-by-year breakdown of the number of states
granting the different authorities.

III. DATA AND EMPIRICAL METHODOLOGY

The data employed in this investigation come from a variety of
sources. The variables of interest are the regulatory changes
experienced by NPs and PAs, whether they had prescriptive authority and
reimbursement authority. The compilation of regulations provided a
database indicating by state and year whether NPs and PAs had full
prescriptive authority and whether each occupation had reimbursement
authority. From this database, four dichotomous variables were created.

The first pair of variables concerns the ability of NPs and PAs to
prescribe. NP_Rx takes on a value of 1 if NPs in a state have full
authority to write prescriptions and 0 if not. Similarly, PA_Rx takes on
the value of 1 if the state authorizes PAs full prescriptive authority
and 0 if it does not.

Concerning the reimbursement status of NPs and PAs, NP_ReimbAuth
and PA_Reim-bAuth were created. NP_ReimbAuth takes on a value of 1 if
NPs are granted this authority and 0 otherwise. PA_ReimbAuth takes on a
value of 1 if PAs have this authority extended by the state and 0 if
not. Note that NP_ReimbAuth and PA_ReimbAuth have different meanings, as
noted previously, though both concern the authority to have
reimbursement.

A number of data sets are used in conjunction with this regulatory
data. For NPs, the data source for earnings is the National Sample
Survey of Registered Nurses (NSSRN). The NSSRN is a national survey of
registered nurses (RNs) conducted every 4 yr by the U.S. Department of
Health and Human Services. The sample is a probability sample of the
universe of RNs, as obtained from the state boards of nursing. While the
focus of the survey is RNs, NPs are identifiable since NPs are also RNs.
The NSSRN data observational level is the individual and it contains a
host of demographic information (age, sex, race, state, marital status,
etc.) as well as professional information (income, area of practice,
type of employers, typical hours worked, etc). The NSSRN provided a
sample of just more than 1,500 NPs over the 4 year (1992, 1996, 2000,
and 2004).

The primary data for PAs were the American Academy of Physician
Assistants Annual Census. The AAPAAC is a proprietary national survey
administered by the American Academy of Physician Assistants (AAPA)
annually to all PAs in the United States with an active license to
practice. The data were obtained from the AAPA under a special agreement
for this research. Its observation level is the individual and contains
both demographic (age, sex, race, state, etc.) and professional
information (income, area of practice, types of employers, typical hours
worked, etc.). The AAPAAC was available for the period 1996-2004 and
provided a sample of about 95,500.

The CPS Annual Social and Economic Supplement was the data employed
for physician earnings. (7) The CPS is a public data survey, conducted
and maintained by the U.S. Bureau of Labor Statistics and the U.S.
Census, commonly used in economic research. It contains a host of
demographic and labor market information at the individual level and
identifies physicians as an occupation though the data does not identify
the specialty of physician. The years 1996-2005 were employed in this
analysis resulting in a total sample of just more than 3,700 physicians.
(8)

To empirically estimate the impact of NP and PA prescriptive and
reimbursement authority on the incomes of NPs, PAs, and physicians, a
standard wage regression model is employed, with the regulatory
variables of interest included. The following augmented Mincer general
equation is the first equation estimated.

where Rx is a matrix of state prescriptive authority for NPs and
PAs (NP_Rx and PA_Rx) and Reimbursement is matrix of state-level
reimbursement authority for NPs and PAs (NP_ReimbAuth and
PA_Reim-bAuth). X is a vector of personal characteristics and
interactions and S is state real per capita income. In addition, year
and state fixed effects are included in the estimations.

The dependent variable being explained in the example is In wage,
the natural log of the real earnings (year 2000 dollars) of individual i
in time t. The same base model is employed for NPs, PAs, and physicians
but is modified to suit the available data for each practitioner
category.

While it is possible that some policy or regulatory change could
have an immediate effect on a labor market, often the impact of a policy
change develops over time. To take this "maturing" into
account, the basic model represented by Equation (1) is augmented. To do
this, four additional variables were constructed: NP_Rx_TimeSince,
PA_Rx_Time-Since, NP_ReimbAuth_TimeSince, and PA_ ReimbAuth_TimeSince.
These measure the number of years that NPs and PAs have had the specific
authority in a state since 1992. For example, if a state granted NPs the
authority to write controlled substance prescriptions in 1996,
NP_Rx_TimeSince takes on a value of 4 for year 1999. If a state has
never granted authority, the time variable is recorded as 0, as is the
contemporaneous variable (NP_Rx). This results in the enhanced model:

where Rx_TimeSince is a matrix containing the two duration
variables and Remibursement_TimeSince is a matrix containing the two
duration variables with respect to reimbursement authority.

IV. ESTIMATION RESULTS

A. NP Estimation Results

Equations (1) and (2) are estimated employing the NSSRN data for
years 1992, 1996, 2000, and 2004 for full-time NPs between the ages of
25 and 60. Real per capita income as well as state and year fixed
effects are included to account for any state or year-specific
characteristics that could influence the earnings of NPs. Huber-White
standard errors are also employed. Table 2 provides a summary of the
estimated coefficients of interest. The full results can be found in
Table A3 in the Appendix. Summary statistics and a description of the
variables can be found in Table A2 in the Appendix.

The estimation results of Equation (1) indicate that no regulatory
variable coefficient of interest is significantly different than zero.
When the "time since" variables are included (column 2), the
results change. By controlling for the effect of these authorities over
time, there is some evidence that both NP and PA expanded authority
affect NP incomes. The coefficient estimate on the number of years NPs
have had the authority to prescribe is positive and significant at the
5% level, implying that having this authority tends to increase NP
earnings over time, all else equal. This conforms to the expectation
that as a practitioner receives greater authority, their incomes will
also improve. The interpretation is that every year NPs have this
authority, their earnings increase on average from the year before by
roughly 1.6%, all else equal. No other NP authority was estimated to be
statistically significant.

With respect to the impact from PAs having greater authority, the
effect is found in the duration measure of PAs having prescriptive
authority. The coefficient estimate is negative and significant at
nearly the 5% level. This implies that the longer PAs have the authority
to write controlled substance prescriptions, the bigger the effect on NP
incomes. This finding also fits with the prior expectation that a
competitor to NPs having a greater level of practice authority would
tend to damage NP incomes. The economic effect of this is also material,
with NP earnings falling on average just more than 1% for each year PAs
have this authority. No other PA authority was found significant.

B. PA Estimation Results

Equations (1) and (2) are also estimated for PAs, employing the
AAPAAC data. The AAPAAC data, however, deserves additional attention.
While the AAPAAC data have a large sample size and a number of
individual control variables, earnings are recorded as "income
bands," generally in $5,000 increments. For example, if a PA has
annual earnings of $67,000, this is reported in the AAPAAC as having
earnings of between $65,000 and $69,999. The data, being banded, also
has left and right censoring (at $30,000 to the left and $150,000 to the
right).

These characteristics of the data, particularly the censoring, make
standard ordinary least squares (OLS) techniques inappropriate for
estimation purposes. A Tobit model, based on Tobin (1958), is more
appropriate when censored data are involved. However, another estimation
approach that preserves the interval characteristics of the banded
income data while accommodating the censoring issue exists. This
estimation model, referred to as "interval regression," is
based on work by Amenmiya (1973). Interval regression is essentially a
generalization of the Tobit model. (9)

The estimation results, using the interval regression method, of
Equations (1) and (2) can be found in Table 3. (10) The full results can
be found in Table A5 in the Appendix. Summary statistics and a
description of the variables can be found in Table A4 in the Appendix.

For Equation (1), the coefficient estimate for NPs having the
authority to prescribe controlled substances is found to be negative and
significant. This implies that in states where NPs have this authority,
PA incomes are lower on average, all else equal, by around 1.4%. (11)

The estimation results for Equation (2) also show a significant and
negative impact from NPs having controlled substance authority in the
contemporaneous measure. Interestingly, PAs having expanded authority is
not found to impact their earnings, either contemporaneously or through
time.

It is also found in the estimation of Equation (2) that NPs having
payment authority impacts PA earnings. This effect is found in the
estimated coefficient on the duration measure. Of particular interest is
that the coefficient is positive, which implies that as NPs have
reimbursement authority, PA incomes increase over time.

C. Physician Estimation Results

The final practitioner category considered is physicians. Both
Equations (1) and (2) were estimated using the CPS ASES data, as
described previously. Standard OLS, with state and year fixed effects
and Huber-White standard errors, was employed for full-time physicians
between the ages of 30 and 60 with a variety of controls. While it would
be ideal to control for the specialty of the physician since the data
have no information on specialty, this was not possible. The estimation
results for the variables of primary interest are provided in Table 4
and full estimation results can be found in Table A7 in the Appendix.
Summary statistics and a description of the variables can be found in
Table A6 in the Appendix.

The estimation results of Equation (1) for physicians, shown in
column 1, indicate that no contemporaneous measure of NP or PA practice
authority is significantly different than zero at conventional levels.
However, when the length of time NPs and PAs have had prescriptive and
reimbursement authorities is included, there is some evidence that both
NP and PA authority levels matter. Column 2 shows the coefficient
estimates for Equation (2). The coefficient estimate for the length of
time NPs have had prescriptive authority is negatively signed and
significant at the 5% level. The interpretation for this result is that
physician incomes are on average lower by roughly 7.6% for each year NPs
have authority to prescribe, all else equal. No other NP authority
measure is statistically significant.

Interestingly, the effect on physician earnings is the opposite if
PAs have controlled substance prescriptive authority. The coefficient
estimated for how long PAs have had prescriptive authority is positive
and statistically significant. The interpretation of this coefficient is
that each year PAs have the authority to write controlled substance
prescriptions, physician incomes increase on average, all else equal.

D. Endogeneity and Selection Bias

The variation being exploited in the current investigation derives
from state-level changes in occupational regulation. Even though the
investigation examines the impact on individuals, there is some concern
that regulatory changes may not be exogenous with respect to provider
incomes. If the regulations are not exogenous then OLS estimates are not
credible. Before a full discussion of the estimation results, some
attention should be paid to this issue.

To assess this concern, the endogeneity of the regulatory variables
was tested. To do this, the Durbin-Wu-Hausman lest was performed for the
four potentially endogenous regulatory variables: NP prescriptive
authority, NP reimbursement authority, PA reimbursement authority, and
PA payment authority for each practitioner sample. This test essentially
compares the coefficient estimates obtained by estimating via OLS to
two-stage least squares estimates. (12) If the potential endogenous
variables are in actuality exogenous then both OLS and two-stage least
squares are consistent, but the OLS estimates are more efficient.
Hausman (1978) proposed a straightforward method to investigate this,
and Wooldridge (2006) expands the test to the case where there are
multiple suspected endogenous variables.

To implement this test, appropriate instruments must be selected
for the potentially endogenous variables. Finding appropriate
instruments is always a challenge, and for the current investigation,
instruments were taken from a public choice framework that employs
political variables as instruments for regulatory and policy changes.
Specifically, the pool of political variables chosen as instruments
included population per state senator, population per state house
representative, political party of the governor, percent of Senate that
are Republicans, percent of House that are Republicans, whether the
legislature has annual sessions, whether the legislature can call itself
into session, whether there is a time limit on legislative sessions, and
whether the legislative body can determine its agenda in special
sessions. Intuitively, these political variables make reasonable
instruments as changes in regulation are by their nature political. In
evaluating the chosen instruments for each practitioner group, they met
the conditions of being correlated with the suspect regulatory variables
as well as not being correlated with the error term of the original
estimation, Equation (1). (13) In addition, F statistics testing the
joint significance of the instruments in the first stage are provided in
Table A8 show that the instruments have explanatory power.

There was no evidence that the regulatory variables were
endogenous. This implies that the regulatory variables can be treated as
exogenous and OLS is efficient. This finding mirrors that of Dueker et
al. (2005) who found that APN prescriptive authority was exogenous to
provider incomes.

Another empirical concern, especially in labor market
investigations, is selection bias. While believed to be mitigated in
this research since it investigates highly educated and specialized
professionals (especially in the case of physicians), it can always be a
concern. To help further alleviate the concern, the presence of
selection bias was tested following the procedure developed by Heckman
(1976). Essentially, the participation decision is modeled on the entire
sample and the inverse Mill's ratio is calculated. The inverse
Mill's ratio is then included in the log wage regression. For both
NPs and physicians, the coefficient on the inverse Mill's ratio was
insignificant, which implies that sample bias is not a concern.

One requirement for the Heckman procedure is that the first-stage
selection equation have at least one variable not in the second stage
(Wool-dridge 2006). Unfortunately, the PA data are very limited in the
demographic controls it contains. Given this, the sample selection issue
could not be credibly investigated. However, the finding that selection
bias was not a concern for the NP and the physician's estimations
should help mitigate the concern for PAs.

V. DISCUSSION

A. Results

A number of interesting results can be taken from this research.
The first is that there is some evidence that NPs having greater
practice authority, as measured by prescriptive authority, is found to
increase NP earnings. This result is counter to the negative impact on
earnings found by Dueker et al. (2005). In a larger sense, the current
finding that expanded practice authority increases NP earnings is
intuitive. It is likely that the different finding is the result of
using data that more cleanly identifies NPs from traditional RNs as well
as from other types of APNs, such as mid-wives and nurse anesthetists.

NPs having prescriptive authority is also found to impact PA and
physician incomes. For PAs, the impact is found in the contemporaneous
measure of the NP prescriptive authority while in the duration measure
for physicians. However, in both instances, the result is negative,
implying greater NP authority leads to a decrease in PA and physician
incomes. The impacts are statistically and economically significant.
When NPs have prescriptive authority, PA incomes fall on average about
1.4%. For physicians, the impact is larger. The strict interpretation of
the coefficient on NPs having prescriptive authority is that physician
incomes, all else equal, fall by roughly 7.6% for each year NP
authority. This result could imply that physician incomes are sensitive
and when they face significant competition from another, substitute
caregiver, their incomes, and potentially the cost of care tend to fall
materially. Taken with the finding that this authority tends to increase
NP incomes by about 1.6% a year, a convergence of incomes between NPs
and physicians is also implied. Thus, as NPs and physicians become more
substitute caregivers (which NPs having prescriptive authority
facilitates), there is a shrinking difference in their average incomes.
While this research was not able to specifically identify the specialty
of the physician, it is intuitive that the downward effect of NP
authority on physician incomes would be greater for (and perhaps is
driven by) general practice physicians as the overlap in the typical
practice of NPs and general physicians is closer than that of NPs and
specialist physicians. Of note is that the finding that NP authority
tends to harm physician incomes is in line with the findings of Dueker
et al. (2005).

One impact of NP authority that does not seem intuitive is the
positive impact NPs having payment authority has on PA incomes. The
effect was found in the duration measure of NP payment authority and had
a magnitude of about 0.3% per year. While a relatively small economic
effect, it is one that grows over time. Though at first, this seems
peculiar, it becomes less so as it is considered in context of what this
authority implies. NPs with this authority have the ability to receive
payment for services they provide independent of a physician. This
decouples the traditional need for NPs to work for a supervising
physician to be compensated by insurers and third-party payers. To the
extent that physician-led medical practices still demand the services of
nonphysician caregivers, a role filled by both NPs and PAs, and to the
extent that NPs remove themselves from such positions by seeking other,
more independent opportunities, the indirect effect is an increase in
the demand for PAs who are always constrained to work under a
supervising physician. This relative shift in demand for PAs, in turn,
leads to PAs experiencing an increase in earnings at the margin. It is
not clear that this is the source of the positive effect, but given the
somewhat contentious relationship physicians and NPs have had over the
appropriate levels of authority NPs should possess in some states, it is
a reasonable hypothesis that could be tested with data on medical
practice staffing.

The effect of PAs having greater authority meets the expectation
that it would have a downward effect on NP earnings. The impact on NPs
is found in the duration measure of PAs having prescriptive authority.
When a state grants PAs controlled substance prescriptive authority, the
results indicate that NP incomes fall on average roughly 0.8% a year.
This, as with the effect found of NP prescriptive authority on PAs,
meets the general expectation that when one occupation receives a
greater authority to practice, other substitute occupations are damaged.

A curious result of the estimation of physician earnings is the
positive impact of PAs having prescriptive authority. Not only is the
effect estimated to be positive and significant, the economic
significance is also strong. The strict interpretation of the
coefficient estimate is that PAs having prescriptive authority tends to
increase physician earnings by about 8% for each year of authority.
While at first striking in sign and magnitude, the result is not so odd
upon further consideration of the relationship between physicians and
PAs and the physician data employed.

Since PAs must be an employee, they obtain their authority to
practice through their employing physician as well as through state
regulation. That they are always an economic agent of a physician, it is
reasonable that expanding their authority would positively reflect on
physicians who employ PAs. If an employee becomes more productive and is
constrained to always remain an employee, it is reasonable that the
fruits of this productivity will show up for the employer. When PAs can
write the full spectrum of medications, they are essentially allowed to
be complete caregivers and are therefore more productive. This would
benefit the supervising physician in at least two ways. First, it would
allow the physician to continue seeing and treating her own patients
without the interruption of seeing patients referred by an employee PA
who could not complete the patient's visit. Second, it would
increase the total number of patients the employee PA could see, which
presumably would increase the medical practice's revenues.

It is an open question, however, as to whether all physicians are
made better off from PAs having this expanded authority. The results
inform that on average physicians in a state are made better off. The
CPS data does not, however, record physician practice area or give
information about whether a physician employs a PA. So, if general
practice physicians are impacted differently than other specialist
physicians, or if employing physicians are impacted differently than
nonemploying physicians, any differential impacts are masked. In
particular, it is plausible that specialist physicians gain more from
PAs having expanded authority than would general practice physicians. As
PAs obtain greater practice authority, they become more like general
practice physicians, able to fill most of the roles a general physician
would in a typical general medical practice. This would tend to harm
general practice physicians from a purely competitive aspect while
benefiting specialist physicians. Along with this, specialists outnumber
general practice physicians by roughly two to one (Smart, 2007).

It could also be the case that medical practices, particularly
general care practices, would fill open positions with PAs instead of
hiring another physician into the practice. If the PA can perform all or
most of the activities a new general care physician would for the
practice but would be constrained to be an employee rather than a
potential partner, it could enhance the incomes of the existing general
care physicians in the practice while also having a downward effect of
the hiring of new general practice physicians. This could also be why
the effect shows up in the duration, implying that this filling of
positions with PAs occurs over time as practices expand.

These questions could be explored with more detailed staffing data
on medical practices and information about physician specialty. However,
without this type of data immediately available, all that can be said
from the current results it that physicians, as a group, are benefited
from PAs being granted greater authority.

VI. CONCLUSIONS

The rise of NPs and PAs as caregivers has been dramatic and the
impacts of this rise have been largely ignored in the research
literature. This article provides the most comprehensive examination to
date of the NP and PA impact by first explicitly accounting for both NP
and PA authority and then by using data better suited for the analysis.
In so doing, it provides a clearer understanding of the impacts of the
dramatic shift in the health-care provider market and signals where some
future research may be aimed.

A primary contribution of this article is that incorporating both
NP and PA authorities is important. This is intuitive as NPs and PAs are
generally considered substitutes for one another. The previous research
literature has recognized the importance of NP authority, but finding
significant results from both NP and PA authority demonstrates that
incorporating both in any investigation is important.

This research also illustrates the importance of controlling for
different authorities specifically. In the current case, both
prescriptive and payment authority were explicitly controlled. The
current results also indicate that just controlling for the
contemporaneous measure of authority can miss the ultimate impact of a
regulatory change. Rather, since labor market responses can occur over
time, incorporating a measure of the length of time the regulatory
changes have been in place is important.

A number of policy implications can be drawn from this research
concerning the impact of NPs and PAs being granted greater practice
authority. A first is that there have been impacts from changing NP and
PA authority on all three categories of practitioners. NPs having
greater prescriptive authority was found to help their own earnings
while causing a fall in physician and PA incomes. Given that NPs and
general care physicians are often seen as substitute caregivers, one
potentially important policy result from this, especially with the
literature finding that the quality of NP and physician care is
clinically similar, is that there are potential cost savings to allowing
greater competition between these practitioners.

PAs having authority was not found to specifically impact their own
earnings, but it was found to lower NP earnings. Interestingly, PA
expanded authority was found to improve physician incomes, all else
equal. This result likely stems from the employer-employee relationship
between physicians and PAs and that physicians of all specialties were
included in the physician sample. Neither issue could be addressed given
the limits of the physician data in the current research, but the
question does raise other questions concerning the impact on medical
practice productivity stemming from PA authority as well as the impact
on provider population levels.

The larger research literature is split on the ultimate effect of
an occupation being granted greater freedom to practice. The current
research provides evidence that own authority can increase own earnings.
No evidence that own authority hurts own earnings was found. It also
shows that other occupations' authority can both help and hurt
related occupations. This dual finding implies that there are likely
inherent differences in specific, though related, labor markets. This
underscores the importance of understanding such differences in policy
making. While currently unavailable, a contribution could be made in
disentangling these differences by having detailed data on medical
practices and staffing trends for a number of years.

With dramatic changes in authority being seen across the medical
occupation landscape, this makes it increasingly important to carefully
examine these types of impacts, especially since the literature provides
no generalizable results. As one example of another major development
and authority change, in 2002. New Mexico granted psychologists the
authority to write some prescriptions for clients in therapy, a practice
traditionally the sole domain of psychiatrists. In another example, the
Federal Drug Administration recently announced that it was considering
allowing pharmacists to prescribe some medications without physician
involvement (Fox News, 2007). The ultimate impact of these types of
changes has potentially wide-ranging effects and is of substantial
policy interest.

Health care will continue to receive a substantial amount of policy
interest. A part of that attention should be aimed at understanding the
impact of changes in the occupational regulation of its occupations.
This research provides a foundation for examining these types of changes
in other areas of the health industry while specifically educating on
the impact NP and PA authority changes have had on the earnings of NPs,
PAs, and physicians. It also provides a foundation for further study
that will provide a deeper understanding of the impacts of changing NP
and PA authority on their own and physician labor markets.

Heckman, J. J. "The Common Structure of Statistical Models of
Truncation, Sample Selection, and Limited Dependent Variables and a
Simple Estimator for Such Models." Annals of Economic and Social
Measurement. 5, 1976. 475-92.

* I would like to thank Glenn Blomquist, John Garen. Kenneth
Troske, Joseph Fink, Dave Ziebart, the late Mark Berger, Chris Clark,
Mike Clark, and Barry Boardman for guidance and thoughts on this
article's development. I would also like to thank the AAPA and
Kevin Kraditor for the use of the Academy's data on PAs.

(4.) Note that masters-level programs in nursing are not
exclusively NP producing.

(5.) APN is a term used to describe nurses in advanced practice.
NPs, nurse-midwives, nurse anesthetists, and certified nurse specialists
are all classified as APNs.

(6.) Prescription pharmaceutical substances are classified into two
broad categories by the Controlled Substances Act passed by Congress in
1970: noncontrolled substances and controlled substances. Noncontrolled
substances are medications generally thought to have a low probability
of addiction or abuse and include medieations such as antibiotics and
acid reflux medications. Controlled substances, on the other hand, are
pharmaceuticals identified to have a high risk of addiction or abuse and
are thus regulated more heavily. There are five schedules of controlled
substances. Schedule I is considered the most addictive and classified
as having no medical use. Schedule V is the lowest schedule and is
composed of drugs that, while potentially addictive, are not considered
"highly" addictive.

(7.) It should be noted that total income was used for physicians
(as well as NPs and PAs) relying on the accuracy of the reported income
data from the CPS as well as NSSRN and AAPAC.

(8.) While including earlier years of data, before 1996, the CPS
top-coded earnings at $100,000 were explored. While this is not likely a
critical truncation of earnings for most occupations, it is for
physicians. In 1995, more than half of the sampled physicians had
top-coded earnings.

(9.) See STATA Manual Reference A-J Release 9 (Stata, 2005), p.
513.

(10.) The estimations were also performed using OLS and Tobit
techniques using the midpoint of each income band as the income. Nicely,
the results were not sensitive to the estimation technique. The PA
income data bands were also adjusted to real terms using the CPI (2000
real dollars).

(11.) Note that in a semilog model, the coefficient estimate on a
dummy variable is approximately the percent change in the dependent
variable from the variable being tuned "on." See Kennedy
(1981).

(12.) It should be noted the estimation results for PAs in this
article are not OLS estimates. However, the results from using the
interval regression model and OLS are materially the same. This provides
some assurance that this endogeneity test is appropriate for the PA
estimates as well as for NPs and physicians.

(13.) One important note is that instruments for all years of data
for each state were not available. Thus, the endogeneity test was
performed on a smaller sample than the total sample for each of the
practitioners.